Relaxation of norms for MFIs to be rolled out in phases
By Vaibhav Aggarwal
Jul 5, 2012
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The banking and monetary regulator Reserve Bank of India has notified that tit would relax the norms relating to microfinance institutions (MFI). The process of easing up of the existing stringent norms would take in phases, said Dr. D. Subbarao , Governor, RBI. This affirms the speculations which were doing rounds since the last month.

Dr. Subbarao included that the norms pertaining to capital adequacy, net worth, and provisioning would be relaxed to help the sector. Under the existing norms, some of the MFIs aren't even able to meet the entry barrier of Rs. 5 crore of capital requirement.

The worst struck region is Andhra Pradesh, where many MFIs are under heavy load of nonperforming assets, shrinked bottomlines, and eroded capital. These lenders are not able to meet the central bank's limit for capital adequacy and provisioning for such liabilities.

However, in the past few months these microfinance institutions have been able to attract capital from venture capitalists (VC) funds, which means investors are getting bullish for the sector, stated Dr. Subbarao.

The cost of credit for the customer remains a matter of concern, according to Dr. Subbarao, there have been complaints from the customers that the lenders have increased the rates without any change in 'risk profile'. In addition to it, the new floating rates loan customers are being provided credit at lower costs, which has received the ire of existing/old borrowers.

The central bank has constituted a committee for non-discriminatory pricing of credit, which would be chaired by the Deputy Governor Mr. Anand Sinha, the reports for which is expected to be out by August 2012.


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